Labor market trends with balanced growth

Well-known stylized facts have led to widespread use of the balanced growth concept. Recently, labor market trends including rising educational attainment and share of the labor force considered skilled have cast doubt upon balanced growth as an appropriate baseline. This paper develops a version of the neoclassical growth model that allows these labor market dynamics to occur jointly with balanced growth in output. Along the balanced growth path, skill-biased technological change drives rising skill and education levels. Relative prices of goods adjust so that growth in the value of total output is unaffected by these labor market changes. Several plausible foundations for skill-biased technological change are offered. (c) 2005 Elsevier B.V. All rights reserved.